Which are the best FTSE-listed small beverage stocks to invest in right now?

Buying shares in the best small drinks maker might add a little fizz to a portfolio. Read on to find out which ones James J. McCombie would back for profits.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Shares in beverage companies producing branded drinks that consumers love to knock back form a core component of many a portfolio. These types of companies may not usually take their shareholders on wild rides. However, steadier capital gains and dividends are usually on the cards. Add to that resilience to big price swings during recessions, and buying shares in the best small beverage company should be a rewarding experience in the long term.

Turning out something fizzy in a can and slapping a label on it does not, however, guarantee success. Business models differ, consumer tastes have to be considered and marketed to appropriately, and competition is ever-present. Therefore an investor still needs to do their research.

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The larger beverage companies will probably be well known to investors. So, let’s venture off the beaten track and explore the drinks makers with market caps under £1bn. We have soft drinks makers AG Barr and Nichols (LSE:NICL), and C&C Group, which produces ciders, beers and spirits. Finally, we have Stock Spirits (LSE:STCK), which produces, you guessed it, spirits, but market mainly in Eastern Europe.

Recipes for success

The four companies will be ranked on three measures each for profitability and return on investment, two measures of balance sheet strength, two measures of growth (in revenue and EPS), and dividend yield. For each company, we will average their rankings, and the winner will be the one whose mean is the closet to four. The table below shows the relevant data for each of the companies.

 

AG Barr

Nichols

Stock Spirits

C&C Group

Ticker

BAG

NICL

STCK

CCR

Size

       

market cap (millions)

£515.33

£454.12

£435.00

£551.14

sales (millions)

£256

£147

€312

€1575

Profitability

       

gross margin

41.49%

47.6%

47.04%

32.19%

operating margin

14.90%

22.07%

15.22%

6.05%

net profit margin

11.65%

18.26%

10.77%

4.67%

Return on investment

       

return on investment

12.56%

21.72%

7.31%

6.86%

return on equity

14.25%

22.6%

10.68%

13.28%

return on assets

12.56%

18%

5.70%

4.74%

Annual dividend yield

3.55%

3.01%

4.22%

8.31%

Credit profile

       

Total debt/total equity

0.0379

0

0.3296

0.9958

current ratio

1.44

3.38

1.56

1.29

Growth (5 years)

       

revenue

-0.29%

7.76%

4.36%

23.18%

EPS

0.478%

13.64%

9.27%

-0.7664%

It looks like Nichols is the winner, based on the information collected, with an average score of 3.64. Second place goes to Stock Spirits with an average of 2.36, third to AG Barr with 2.27, and fourth to C&C Group with 1.72.

More pop less fizz

The data collected reflects the past performance of the companies analysed. Investment performance depends on the future. Therefore, broker recommendations can serve as a useful guide for the future. I have typically used the highest percentage of buy or outperform recommendations in picking the best prospect.

By this measure, Stock Spirits is the winner. As of 14 May, 100% of recommendations for the share were either buy or outperform. Nichols comes dead last; all five suggestions are that the stock should be held. These are, of course, smaller-cap stocks, and analyst coverage is relatively low, which may distort the results.

If we look at share price forecasts for the two stocks, the highest expectations for Nichols and Stock Spirits are 49.5% and 53.2% gains, respectively, over 12 months. There is not much separating the two stocks here, yet the analysis of the recommendations provides a stark difference. Something does not quite add up.

Sharing the best drink

Nichols recently announced it is suspending its dividend despite having £40m in the bank, which is enough to cover the dividend payment four times over, and zero debt. Investors will be disappointed by this, but it does point to Nichols having the edge over Stock Spirits in financial strength. 

Stock Spirits is by no means a slouch in the balance sheet department. However, given the coronavirus crisis, I would tend to favour the additional strength and past performance of Nichols. However, Stock Spirits looks like a solid company and is favoured by a few brokers. 

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